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Is IT’s Elevation of Role Raising Risk Levels?

The profile and influence of  IT are expanding — rapidly. Business leaders speak about the integral role of IT in modern commerce.  We see lots of articles saying that IT is one of the growing professions.  Even the NASDAQ is supporting pretty aggressive multiples on technology stocks with little talk of a bubble.  It’s a great time to be busy in a hot profession, right?

Some recent research suggests we might do well to remember that with reward comes risk.  And that risk could get personal; when we meet the enemy, as Pogo said, he might possibly be us.

We’d like to know your thoughts on risks in the insurance IT world.

Be careful what you wish for …

IT professionals have long argued that technology is more than an efficiency tool, it can, and should, support strategic initiatives.  On this basis, IT leaders should be recognized as peers at the executive and board levels.

It seems the right folks have been listening. Writing in The McKinsey Quarterly (reprinted in Insurance Networking News),  Naufal Khan and Johnson Sikes reported on the most recent McKinsey global executive survey on business technology.  At a high level, it is a good news story for IT professionals seeking a broader business role:

“Concerns about managing costs are down, while larger shares of executives now say their organizations are using IT to improve business effectiveness and information availability. Respondents cite these same objectives most often as ideal priorities, suggesting that companies are getting better at aligning their actual priorities with what’s ideal—and that more executives see IT as core and relevant to day-to-day business, not merely a cost center.”

And spending is reflecting these expectations.  Over the next 3 years, respondents expect average spend on infrastructure and core applications to drop from 53% of IT budget to 41% while spend on analytics and innovation initiatives is expected to increase from 22% to 32% of the same budget dollars.

… You just might get it

The good news doesn’t continue unfettered, however.  The same respondents see IT being less effective at achieving business goals than in the past.

From 2011 to 2013, the survey indicates slight drops (less than 10 basis points) in the perception that IT facilitates some functions: Sharing Knowledge, Delivering Productivity Gains, and Tracking Customer/Segment level profitability.  There was a greater drop in facilitating: Creation of New Products (13 basis points) and Entering New Markets (20 basis points).

Insurers understand risk …

So IT departments in insurance companies can expect close scrutiny.  According to the results of Wolters Kluwer research for its Regulatory and Risk Management Indicator report (reported in Insurance & Technology), insurers don’t find the view all that comforting.

When asked what was the top obstacle to managing risk at the enterprise level, 37% of the 300 organizations responded “Too many technology systems that are not integrated.”  This was the highest response overtaking others including “Regulatory pressure”.  A separate, but related IT category, “The lack of quality data, management, and analysis,” earned support from an additional 14%.

Steve Taylor, senior market manager of enterprise risk and compliance for Wolters Kluwer, told Insurance & Technology that out-of-the-box implementations of technology to meet a wide range of needs “are often lacking when faced with the demanding and increasingly complex landscape of regulations for financial services companies.”

Where to from here? It gets personal…

McKinsey asked respondents what needed to be done to improve IT performance, Naufal and Sikes indicate that “the largest shares of all respondents say improving business accountability, reallocating funding to priority projects, and improving the level of IT talent would do most to improve performance.”

Some went further.  Twenty percent of respondents identified “replacing IT management” as a solution, up from 13% in the 2011 survey.  Interestingly, when the responses from IT personnel were segregated, Naufal and Sikes report: “28 percent say new management would boost effectiveness, more than twice the share of business executives who say the same.”

Ouch.  Et tu Brute?

What do you think?

Is IT just going through growing pains and needs time to adjust to a newer, broader mandate?  Or  are there some fundamental obstacles that prevent us from achieving the higher expectations business is putting on us? Or something else?

We’d like your thoughts here.

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